Nokia is poised to launch new IP routing products that it expects will fuel a turnaround in this business in 2017, the company revealed on an earnings call today.
Few details are available about the forthcoming innovation but Nokia Corp. (NYSE: NOK) CEO Rajeev Suri said a next-generation product would be aimed at cloud and "web-centric" companies, describing this market as an "untapped opportunity" for the Finnish vendor.
The IP routing business suffered a 12% year-on-year drop in sales in the recent October-to-December quarter, to €814 million ($879 million), and revenues for the whole of 2016 were down 8.4%, at around €2.9 billion ($3.1 billion).
Following its takeover of the Alcatel-Lucent business in early 2016, Nokia has been cutting down on sales of third-party IP routing equipment, and Suri told analysts the "majority" of these products were now "out of the system."
But he also noted a slowdown in IP routing business with telcos as traffic shifts to cloud providers.
Nokia's answer, clearly, is to come up with a next-generation product aimed mainly at companies in this sector.
"We've got traction in optical and a next-generation product will allow us to get into routing as well," he told analysts. "There has to be accelerated investment and much of that will come from enterprises and web-scale companies -- we have a presence in these segments but much of the opportunity is untapped and we're focused on changing that."
The IP routing move is one of the first signs of Nokia's new focus on markets that it says are "adjacent" to the telco sector.
The vendor is hoping to offset the slowdown in its traditional business by targeting enterprises in a range of vertical markets, including energy, transportation, the public sector, so-called "technological extra-large enterprises" and the web-scale players. (See Nokia to Create Standalone Software Biz, Target New Verticals and Nokia's New Software Unit to 'Redesign' Company.)
According to forecasts it unveiled last November, during its Capital Markets Day, its mainstream telco market will grow at a compound annual growth rate (CAGR) of only 1% over the next five years.
The adjacent markets it is targeting, by contrast, are set to grow at a CAGR of about 13% over the same period, Nokia reckons.
While Nokia does not break out details of enterprise revenues, executives have previously indicated that it makes about €1 billion ($1.1 billion) annually from enterprise customers. Between 70% and 80% of that amount appears to come from the former Alcatel-Lucent business. (See Nokia to Create Standalone Software Biz, Target New Verticals.)
Financials published earlier today show that Nokia generated a total of €23.9 billion ($25.8 billion) in revenues over the whole of 2016, 10% less than the combined Nokia and Alcatel-Lucent businesses made in 2015. (See Nokia Upbeat on Turnaround Despite Sales Decline.)
Other recent enterprise sector moves have included a revamp of IMPACT (standing for Intelligent Management Platform for All Connected Things), an Internet of Things platform that Nokia launched in the summer of 2016. (See Nokia Aims for Big IMPACT in Enterprise IoT.)
Nokia has made some progress on selling IMPACT to its telco customers but is now making investments in new sales channels so that it can serve enterprise customers directly.
Speaking on today's earnings call, Suri said "order intake" had been strong at Nokia's applications and analytics business, which is responsible for the development of IMPACT and other software products.
Like the IP routing business, the applications and analytics division was formerly a part of Alcatel-Lucent.
— Iain Morris, , News Editor, Light Reading